"The team behind the popular open-source video player VLC is busy working on an Android app, which could be released in early 2011. Lead VLC developer Jean-Baptiste Kempf told me on Thursday that it will be 'a matter of weeks' until the release of the first VLC app for Android-based mobile devices."

I imagine they've built a custom back-end for using Android's HW accelerator (or I hope they did). If the given codec isn't supported they must likely drop down into software decoding.

Ffmpeg and other codec libraries in use by VLC are fairly optimized for ARM, so this could actually make a fairly decent playback program. Battery life will be terrible if they don't use HW decoding though.